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Monday, September 12, 2011

Devils In Danger of Bankruptcy

The New Jersey Devils hockey club missed a key loan payment and risks bankruptcy, according to this New York Post report. The Devils become just the latest National Hockey League team to skate on thin ice, following the New York Islanders (which backed and lost a recent arena referendum -- which I criticized) and Phoenix Coyotes (a team which has no business not being in Canada under different ownership). Low attendance, or more accurately, the unwillingness of hockey fans to pay $100 a seat in some markets, is a prime cause of the difficulties. The unsold seats are never in the "cheap" sections. However, blame should really go to the National Hockey League's salary cap/floor scheme under its current collective bargaining agreement, reached after its 2004-05 lockout, which mandates teamwide minimum salary payments. The floor has doubled from approximately $23 million to about $47 million since the 2005-06 season. This mandated increase alone accounts for most of these teams' reported losses. The Devils' missed payment -- some would say, "strategic default" -- could be a common, if not necessarily honest, business practice or tactic to try to induce lenders to renegotiate the terms of a loan. The Devils' missed payment (not technically a default) endangers the financial health of the operating company -- which has common ownership with the Devils -- that operates the showpiece Prudential Center in Newark. The arena has received significant public financing, and the operating company previously withheld payments to the City of Newark. The initial criticisms of then-challenger (and current Newark mayor) Cory Booker about public financing of a private arena have become increasingly validated, Booker's later support for the arena notwithstanding. Many of the Prudential Center's tenants have been plagued by spotty, or downright low, attendance. Eyewitness observations easily confirm a wide disparity between actual and announced crowd totals for all Prudential Center sports events: the Devils, the New Jersey Nets and New York Liberty, and even the now-defunct New Jersey Ironmen of the Major Indoor Soccer League. (In my opinion, the soccer club was just a way for the operating company to have more "event dates" to give low-show jobs to Newark residents to work an empty arena, and otherwise to pretend to be active. The Ironmen claimed to have drawn about 4,000 fans per game; however, for one game I counted -- literally -- approximately 2,100 when the announced crowd was about 3,000.) The Devils' missed payment may be a negotiating tactic, or a sign of significant financial distress caused by overleverage. In this economy, this should sound familiar.Eric Dixon is a New York attorney who handles crisis situations and sensitive legal matters including investigations. Mr. Dixon is also a former hockey season-ticket holder and comments regularly on the economics of professional sports.

Dixon Investigation Gets Powerful New Jersey Politicians To Run From Camera. Watch this report to see one mayor run from cameras while another nationally-prominent governor gets quiet. Political big shots are no match for Eric Dixon's methodical investigations and confrontational, adversarial approach.